M&A activity looking favourable for NZ in 2021
Following a roller coaster year, New Zealand’s comparative success with its Covid-19 response is likely to favour merger and acquisition activity in New Zealand in the year ahead, predicts MinterEllisonRuddWatts’ leading corporate team in its latest M&A Forecast.
The idea of "New Zealand as a haven" for international investors is one of a number of interesting trends pointing to a strong year ahead for M&A activity. Partner and head of MinterEllisonRuddWatt’s corporate division, Silvana Schenone, believes that the firm will be busy throughout the year.
"When New Zealand was first put into lockdown and almost every deal was put on hold or abandoned, we saw deal volumes build throughout the remainder of 2020, with a very busy period in the run-up to Christmas. All indications point to these comparatively high deal volumes continuing for the rest of this year."
The firm expects to see activity from both corporates and private equity firms, with corporate partner and private equity expert, Neil Millar commenting that, "Our domestic private equity clients are weathering the storm in pretty good shape. These funds are cashed up and bullish, well aware that Covid-19 has likely created new bolt-on opportunities that perhaps did not exist 12 months ago."
"International corporates and private equity funds are very interested in New Zealand assets and are diverting resources to deals on our shores in favour of deals in their own back yards."
MinterEllisonRuddWatt’s corporate team makes the following predictions for the year.
- Continued belief that New Zealand is a "safe haven" driving inbound investment throughout 2021.
- The influx of returning, cashed-up New Zealanders driving a mini boom in small business sales as they look for longer-term homes for their money and energy.
- Increased interest in New Zealand, being matched by an increased supply of good quality assets. Many businesses that were pulled from the market during lockdown have traded well in the second half of 2020 and will likely come back to market. This will supplement those that were always targeting an exit in 2021.
- With emergency fundraisings now largely completed and the appetite for raising funds diminishing, many investment bankers will return to business-as-usual and re-focus on their M&A pipeline.
- The economic reality for many New Zealand businesses will start to bite in 2021, and as a result more distressed acquisitions will occur in the second half of the year.
- While debt providers may be more selective about the deals they will fund, there is plenty of money to lend (at good rates). Increased availability of non-bank lending will add to the competition and help facilitate more deals.
- International corporates will trim and divest non-core New Zealand assets, to build cash and shore up their position in key jurisdictions.
The report concludes, "Not all conditions will be conducive to M&A in 2021 with an increased focus on due diligence expected – adding cost and slowing deals. It’s likely to be a big year for IPOs which will drive those assets away from M&A exit strategies."
MinterEllisonRuddWatts’ report on New Zealand’s M&A activity is available here.